Former Obama official placed in charge of government's $1.56 trillion student loan portfolio

A former Obama-era official has been appointed as the head of the office of Federal Student Aid (FSA), which oversees the trillion-dollar student loan portfolio held by the Education Department (ED).

The ED named Richard Cordray, who previously served as the first-ever director of the Consumer Financial Protection Bureau (CFPB) and the former Attorney General of Ohio, as the chief operating officer of FSA.

“Education has made all the difference in life for my family and me, and it has been the foundation of progress in this country for generations,” he said in a statement. “But too many students find that access to affordable, good-quality higher education remains far out of reach. I am honored to serve as Chief Operating Officer of Federal Student Aid and will look forward to working with leaders in the Department, across the Biden Administration, and in Congress to ensure that Federal Student Aid does exactly what it was intended to do: create more pathways for students to graduate and get ahead, not be burdened by insurmountable debt.”

Senator Elizabeth Warren (D-MA), who helped create the CFPB after the Global Financial Crisis and recently decried America's “broken student loan system,” applauded the appointment.

“Rich was a fearless and effective leader at the Consumer Financial Protection Bureau where he held big banks accountable and forced financial institutions to return $12 billion directly to the people they cheated,” Warren said in a statement provided to Yahoo Finance. “I’m very glad he will get to apply his fearlessness and expertise to protecting student loan borrowers and bringing much needed accountability to the federal student loan program.”

The last COO, Mark Brown, resigned from the ED in early March amid pressure from progressive groups.

“It is critical that students and student loan borrowers can depend on the Department of Education for help paying for college, support in repaying loans, and strong oversight of postsecondary institutions,” ED Secretary Miguel Cardona stated on Monday. “Cordray has a strong track record as a dedicated public servant who can tackle big challenges and get results. I am confident that under his leadership Federal Student Aid will provide the kind of service that our students, families, and schools deserve.”

Inheriting an unwieldy system

FSA holds more than $1.56 trillion in outstanding federally-backed student loans spread across more than 45 million borrowers while overseeing a system with several clear implementation problems.

A payment pause on federally-backed loans — which has erased roughly $100 billion in interest and other suspended payments — is set to expire at the end of September 2021 (though Cardona recently said it's "not out of the question" to extend it).

In any case, FSA will eventually have to manage millions of borrowers resuming repayment while avoiding the potential “avalanche of defaults” that the current CFPB nominee, Rohit Chopra, recently warned about.

FSA also houses the Borrower Defense Unit, which has been saddled with hundreds of thousands of applications for debt relief from students who believed they were defrauded by various higher education institutions.

Cordray’s office will likely have to address that backlog, along with claims that were systematically rejected by the Trump administration.

Cordray has extensive experience dealing with consumer debt, having served for six years as CFPB director. During his tenure, the CFPB brought enforcement actions that returned over $12 billion to 30 million Americans.

Student loan forgiveness is still on the table, with senators including Warren pushing the Biden administration to broadly cancel up to $50,000 through executive action.

The White House asked the ED to provide a memo on the issue. As of Monday, according to Cardona, the issue is still being discussed.

Undersecretary of Education nominee James Kvaal recently detailed some of the Biden administration’s top priorities.

“One is a temporary form of loan forgiveness directed at people struggling with the pandemic,” Kvaal told the Senate Committee on Health, Education, Labor and Pensions in mid-April. “Second would be for those in public service,” he added, referring to the Public Service Loan Forgiveness Program (PSLF). “And third would be for those with low incomes and high debts.”

The ED also faces lawsuits over its management of the Public Service Loan Forgiveness (PSLF) program, which has an abysmal success rate.

A bipartisan effort by Sens. Maggie Hassan (D-NH) and Marco Rubio (R-FL) proposed to ease military service members' path towards PSLF by counting their deferments and forbearances into the 10-year payment period required by the program.

Cordray will also be helming a massive student loan reform project called Next Gen FSA.

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Aarthi is a reporter for Yahoo Finance. She can be reached at [email protected]. Follow her on Twitter @aarthiswami.

Read more:

• Education Department undersecretary nominee details Biden's student loan forgiveness priorities

• Student loan forgiveness: New Education Department data highlights benefits of cancellation

• Senator Elizabeth Warren breaks down America's 'broken student loan system'

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